GM, Ford Are Hit Hardest as Auto Sales Decelerate

This is from the Los Angeles Times:

Led by double-digit declines at General Motors Corp. and Ford Motor Co., U.S. auto sales fell sharply in October, hurt by soaring gasoline prices, hurricanes and end-of-summer discount programs.

GM, the world's biggest automaker, reported a 25.6% drop compared with October 2004, according to figures released Tuesday. Sales at Ford fell 26.1%, while DaimlerChrysler had a slight decline. Honda Motor Co. and Toyota Motor Corp. posted small gains.

Overall, sales in the U.S. of light vehicles fell 14.1% during the month, which Paul Ballew, GM's executive director of market and industry analysis, said was the industry's worst since 1998.

Sales of SUVs especially "have been taking it on the chin," said Joe Phillippi of AutoTrends Consulting. "That phenomenon has pretty much run its course. They powered the industry for close to 10 years."

The domestic market share of the Big Three U.S. automakers slipped to 52.4% from 56.8% a year ago. Much of that loss went to Asian cars, whose share of the U.S. market rose to 40% in October from 35.9% a year ago, despite lower sales by South Korean companies Hyundai Motor Co. and Kia Motors Corp.

It is all about the big SUVs that GM and Ford were trying to push on the consumers. These SUVs have high profit margins for the automakers, and low gas mileage for the consumers. When gas prices were low, consumers didn't care--they were buying the big SUVs that Ford and GM were happy to sell them. What's Ford and GM's response to the slow sales?

The domestic manufacturers have been trying to wean the car-buying public off those discounts, but that effort has been shaken by October's dismal sales figures. DaimlerChrysler said Tuesday that it would add a $1,000 incentive to existing programs. GM said that it had nothing to announce but that it would remain competitive.

That's right--more incentives. More discounts. More gimmicks.

The days of the big SUVs are slowly dying. The problem here is that nobody wants to pay $80 to fill an SUV gas tank--no matter how much incentives Ford and GM gives out. For the past 10-15 years, Ford and GM were addicted to this market, where the profit margins were high. They refused to invest in smaller, more fuel efficient cars, or into hybrid technology. Consumers didn't want hybrids--they wanted the big Navigators, Hummers, and Suburbans. And yes, the Japanese automakers Toyota, Honda, and Nissan also saw the big profits that can be made and sold their own SUVs to the American market. But the key here is that the Japanese automakers also need to sell smaller, fuel efficient cars in their own home market, where gas prices are much higher. They needed to invest in fuel efficiency, and hybrid technology. And so now, as gas prices have shot up through the roof, the Japanese car makers are again in a position to sell smaller fuel efficient cars to the American consumer--and even adopt hybrid technology into their best-selling cars here. And Detroit has been left behind.

Does this sound familiar? Does this sound like the mid-1970s?